Shares of Hibernia Corp. have jumped 25% in value on strong volume since the bank unveiled its recapitalization program two weeks ago.
The plan by the long-ailing New Orleans bank includes a rights offering of common stock, restructuring of the company's bank debt, and the possible sale of its Texas banking unit.
On Thursday, Hibernia set a 52-week high of $6.25, up 50 cents.
Long Road Seen
Turnover, heavy for the fourth straight day, hit its highest level since the recapitalization plan was announced, topping 450,000 shares.
Analysts still see a long recovery road for Hibernia. "They've certainly made progress and quieted doubts, but this has been an overreaction," said Peter W. Tuz of Morgan Keegan & Co., Memphis.
Mr. Tuz expects Hibernia to lose 40 cents a share this year and not post normalized results for several more years.
At the same time, both the rights offering and the convertible preferred stock now being issued to bank creditors will dilute the holdings of the existing shareholders.
Analysts think Hibernia shares have been rising in sympathy with those of other banks that are emerging from deep financial doldrums. These include Bank of Boston Corp., MNC Financial Inc. of Baltimore, and Midlantic Corp. of Edison, N.J.
Equimark Corp. of Pittsburgh may be a particular model that investors are betting Hibernia will follow.
Equimark scored a spectacular success with a rights offering earlier this year, with proceeds of $52 million far exceeding its goal of $20 million to $30 million.
Improvement in Valuation
The offering raised Equimark's capital ratios, removed doubts about its viability, and bolstered its stock. The shares traded Thursday at $5.50, more than twice the company's first-quarter book value of $2.47 per share.
Hibernia fell below regulatory minimum capital levels after losing a total of $175 million in 1990 and 1991 on loans to highly leveraged companies and commercial real estate. The stock has traded as low as $2.50 this year.
Analysts noted that Hibernia's capital plan will significantly increase capital while shrinking the company's assets, buoying capital ratios. The third part of the recapitalization, sale of the Texas subsidiary, would reduce assets to $4.5 billion from 5.5. billion.
Debt for Stock
Under the plan, creditors led by Chase Manhattan Bank will exchange short-term debt, paying an interest rate of 12.5%, for $60 million of preferred stock convertible into 21.8 million shares of common stock. The creditors also get warrants for 1.8 million shares of common stock.
Terms of the rights offering have not been registered with the Securities and Exchange Commission. Rights offerings typically give shareholders a chance to acquire a certain amount of extra stock at below-market prices. Although dilutive, they can spur a market in demoralized stocks.